Property rents for businesses will continue their downward fall this year, a bright spot for retailers facing a difficult economic environment, according to a recent report by Fitch Ratings.
Most retail properties have only seen 30 percent of their potential rent declines, according to the country's third-biggest credit rating agency. Steep discounts loom ahead.
With consumers spending less, retailers' sales are down.
"The inevitable outcome for these tenants is either store closings, or renegotiation of lower rental rates," Fitch said in its most recent U.S. CMBS Market Trends report.
CMBS refers to commercial mortgage-backed securities. Investors have been hit with losses as the economy has soured. Those losses will continue to rise as the bottom has yet to come, according to analysts and the Congressional Oversight Panel, one of the federal government's bailout watchdogs.
Now property owners and investors face a dilemma: keep rents steady, risking a loss of tenants that move or close up; or lowering rents, which may curtail present income but will keep retailers in business, ensuring a steady stream of income.
"In order to keep retail occupancies up, property owners will likely be forced to accept lower rental rates from tenants with leases rolling over," the report noted in reference to those businesses with expiring lease agreements.
"Because retail sales have been on the decline for two years and rolling tenants will typically renegotiate lower rental rates as their leases expire, most retail properties have only seen 30 percent of their potential...rent declines," according to the Fitch report.
The rating agency expects retailers to post a "modest increase" in sales this year.
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